Tag Archives: natural gas prices

Austin Energy wants an electric power rate hike

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Michael Giberson

Deep in the heart of the competitive wholesale and retail electric power market that is (the ERCOT system in) Texas lies a little island of small-scale socialism: the municipal electric utility called Austin Energy. While power prices are dropping all around the state due to low natural gas prices, in the Texas state capital Austin Energy is seeking a rate increase.*

Austin has long been a bit out of step with the rest of the state, so this could serve as just another opportunity for “real Texans” to poke fun at the aging hippies that have taken control of the capital’s city government.

Instead, however, you should read Martin Toohey’s excellent article in the Austin American-Statesman, “As natural gas prices dip, Austin Energy rates still to increase.” For many years the city utility has pursued a policy of fuel-source diversification. As the article explains, it is easier to see the value of a diversification plan when natural gas prices spike, and harder to see the value when natural gas prices drop sharply.

*Note that the link goes to a live (i.e. periodically updated) price chart which shows the average prices of one-year fixed rate prices in the Houston area. Similar price effects are present elsewhere in the state. Currently the price chart shows a drop from just over 10 cents/kwh during most of 2011 to about 9.5 cents/kwh in April 2012.

Minnesota biomass projects squeezed by low natural gas prices, leaves some hoping for higher gas prices

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Michael Giberson

The Minneapolis Star Tribune reports that low natural gas prices are putting the squeeze on biomass-based energy projects in Minnesota, in some cases including biomass projects supported by direct taxpayer or ratepayer subsidies. One example, an ethanol plant once gained about 20 percent of its heat from a $20 million biomass gasification system. The system has been idle for a year while the plant relies on cheaper natural gas.

The article notes that the biomass investment was initiated in 2008, a year when gas prices topped $13/mmbtu and before it was clear what the shale gas boost was going to do to gas prices. (Current gas prices are below $3/mmbtu.)

More:

The operators of two recent biomass projects — at the University of Minnesota Morris and Rahr Malting Co. in Shakopee — say they probably would be saving money if they had stayed with natural gas. Neither had decided to abandon biomass, however.

“We are stuck in a situation where I start wishing for the price of natural gas to go up, which is not good for everyone else,” said Stacy Cook, vice president of operations for Koda Energy, a $60 million privately financed joint venture of Rahr and the Shakopee Mdewakanton Dakota Community.

Cook said the Rahr family and the Dakota community are committed to the combined heat and power plant that burns agricultural byproducts, wood or energy crops. It supplies electricity to Xcel and process heat to the malt plant.

“They are looking at a 30-year picture,” Cook said of the plant’s owners. “If you start looking too short-term, it gets too depressing.”

The article then tries to offer a bit of hope to the biomass investor in the way of citing, without almost no context, the highest price projection out of the Energy Information Administration’s study of the effects of natural gas exports on price.  (Namely, the 54 percent price increase by 2018. As discussed here before, the 54 percent outcome is just one of many export and production scenarios that EIA tested with their economic models. It isn’t the most likely scenario by any stretch of the imagination.)

Here is how the Star Tribune cast the possibility: “Natural gas prices may not stay low. Last week, the U.S. Energy Department projected that gas prices could rise 54 percent by 2018 if liquefied natural gas becomes a major export commodity.”

The owner of biomass-producing or consuming assets can wish, but I wouldn’t put my money on it.

Bad news for the natural gas suppliers, but good news for natural gas consumers

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Michael Giberson

I’ve been meaning to remark on natural gas prices for several days, especially since a regular reader pointed out that natural gas prices have reached their lowest levels in a decade. But now, in what may be a first, I’ll just outsource the discussion by favorably linking to a post on the Climate Progress blog.

By the way, note that the prices shown in the post’s graphic (from EIA) are average prices over 2011. Current prices for natural gas are about $1 below what is shown there. (In January, typically peak demand time for natural gas!)

In the post Stephen Lacey worries about the effects of low natural gas prices on renewable power, and it is a problem if you want to roll out more renewable power capacity anytime soon, but for consumers it is a win-win. Low gas prices push down now on (non-transportation) energy prices, particularly power prices. The delay in new installations of renewable power means that, when natural gas prices recover in a few years, the power plants built will have better technology than exists today. Meanwhile, the subsidies avoided will have a very small but beneficial effect on the federal government budget.

And if your primary concern is greenhouse gas emissions, note that natural gas-fuels power plants will continue to displace coal-fired power even as the additions of renewable power plants are slowed.

Cheap natural gas undermining solar dreams

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Michael Giberson

NPR reports from Pennsylvania how low natural gas prices have helped put the damper on some solar power dreams:

Barbara Scott had 21 solar panels installed last March on her house in Media, Pa. Scott’s family was the first in the community, and she was prepared to evangelize, “We can have open houses and write newsletter articles and promote the idea of solar,” she said. But that was before the economics changed.

With government rebates and tax incentives, Scott says, her family spent $21,000 to install the system. She figured it would take eight years to recoup that investment.

But that eight year (private) payback period turned out to be too optimistic. First, too many other Pennsylvanians also invested in solar, which caused the price of solar power credits to drop sharply.  Scott figures the change added seven more years to the payback period. Second, the price of electric power is lower than it would have been because of low natural gas prices. Scott adds another two years to the payback period for that effect.

With a new total of a seventeen-year payback period, Scott observed: ”We’re up to 17 years, which is, essentially, the life of the system. And we haven’t even considered what happens if the system breaks or what it’s going to cost to take the system off the roof and dispose of it. “

As noted, this is a private payback estimate, it only reflects the homeowners expenses and net electric bill reductions. Omitted from the calculation are the taxpayer- or ratepayer-funded subsidies (likely large) and external benefits of the system (likely modest but could be significant). Furthermore, these sort of casual payback calculations frequently omit consideration of opportunity costs (i.e. the time value of money or foregone interest income.)

But isn’t it sort of interesting that the story builds around the effects of low natural gas prices as a culprit even though the effect is relatively modest compared to the much larger solar credit price effect resulting from too many other Pennsylvanians getting into the subsidized solar game?

Natural gas is too cheap and too plentiful

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Michael Giberson

Russel Smith thinks we should use government power to limit natural gas production in order to boost gas prices. Why? Because he is the executive director of the Texas Renewable Energy Industries Association and cheap and plentiful gas is cutting into the business opportunities of renewable energy companies.

“The price is so low, there’s so much being produced, and it’s perverting the effort to move renewables into the marketplace,” he said.

He continued:

With the addition of shale gas to the marketplace and continuing low gas and power prices, Smith said renewables have been unable to gain the traction that was anticipated a few years ago.

“Because prices are so low, the momentum to bring large-scale solar and wind, especially solar, to the market has been somewhat stymied,” he said. “The differential in the price of natural gas and solar wasn’t there five years ago as momentum was building.”

The article said Smith initially suggested the idea of regulating gas production to spark discussion during a conference panel. (Reminds me of the Adam Smith quote on business gatherings: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”)

If he can’t convince regulators to limit gas production, Russel Smith suggested that government could do more to boost demand for natural gas: exports, LNG for long-distance trucking, anything that might help boost the price of the competition. Such moves would, said Smith, “improve the situation for natural gas and everyone else.”

Not quite everyone else, right?